GBP/USD steps up, eying break of 1.2150s

The GBP/USD pair slides amid risk aversion at start of week US session. The British Pound is vulnerable to soured UK politics and economy. The US dollar bulls are moving in on the face of stronger US economic data.

The British Pound is under pressure in the US trading session as risk appetite falls on Wall Street. US major indexes fell after stronger-than-expected service-sector activity that added to expectations that the Fed might pursue its aggressive policy tightening path despite fears of a recession next year.

At the time of writing, GBP/USD is down 0.78% after falling from a high of 1.2344 to a low of 1.2162 so far. The US Dollar is climbing in a risk-off environment as an initial boost of investor enthusiasm over signs of possible loosening in COVID restrictions in China eased and on some speculation that the Fed may not be able to slow down interest rate hiking in December.

The Institute for Supply Management (ISM) said its Non-Manufacturing PMI rose to 56.5 last month from 54.4 in October, indicating that the services sector, which accounts for more than two-thirds of US economic activity, remained resilient in the face of rising interest rates. The data beat forecast the Non-manufacturing PMI would fall to 53.1.

This data combined with Friday’s surprisingly strong Nonfarm Payrolls and wage growth data in November as well as news that consumer spending had accelerated in October gives has raised optimism that a recession could be avoided in 2023.

While the UK political backdrop has retained a calmer air since the start of PM Rishi Sunak’s appointment as prime minister, neither the economy nor the political party is proving easy to manage. ‘Recessionary conditions appear to get stronger in the UK.

Prime Minister Rishi Sunak, in power for just over a month, faces a raft of problems in the run-up to an election that opinion polls suggest the Conservatives will lose which could ultimately spell more weakness for the pound.

The GBP/USD is moving into a phase of distribution below 1.2350, 1,2400 areas on the daily chart as illustrated above. However, the British Pound’s bullish trend is still intact while structures 1.2150 and 1.1900 are yet to be broken. This leaves the focus on the upside in GBP/USD while above 1.1900. A move into test below 1.2150 could result in a deeper correction through the Fibonacci scale with eyes on a 50% mean reversion at 1.2120 and then a 61.8% ratio confluence with the upper quarter of the 1.20 area near 1.2070.